Earlier today, the U.S. District Court for the District of Columbia issued a memorandum opinion and order that vacates and remands the Commodity Futures Trading Commission’s (CFTC) final rules that would have established position limits for certain physical commodity futures and for derivatives that are economically equivalent to those futures (Position Limits Rules). The Position Limits Rules were adopted last year in a 3-2 vote and were promulgated pursuant to authority granted to the CFTC by the Dodd-Frank Wall Street Reform Consumer and Protection Act (Dodd-Frank Act). The CFTC’s vote to adopt the Position Limits Rule was split among party lines. Under the Position Limits Rules, position limits would have been established in two phases; market participants would have had to comply with the first phase of limits beginning on October 12, 2012.1
The District Court’s opinion was issued in connection with a lawsuit initiated by the International Swaps and Derivatives Association, Inc. (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) against the CFTC, challenging its adoption of the Position Limits Rules. Specifically, ISDA and SIFMA claimed that the CFTC violated the Commodity Exchange Act and the Administrative Procedure Act in adopting the Position Limits Rules because, among other things, the CFTC failed to conduct a proper cost-benefit analysis with respect to the rules and failed to show that position limits are necessary and appropriate. The District Court’s opinion focuses on the CFTC’s misinterpretation of Section 4a of the Commodity Exchange Act, as amended by the Dodd-Frank Act, which requires that the CFTC find that position limits are necessary. For more information about the ISDA and SIFMA lawsuit, see Sutherland’s December 7, 2011 Legal Alert.
We are in the process of analyzing the District Court’s opinion.